| Both my wife and I are CPAs, and we have talked about this one particular tax loophole that she deals with in her line of work called "carried interest". Without boring you, "carried interest" relates to income earned by hedge fund or private equity fund managers for basically doing a good job of managing their funds - you know - performing services as a fund manager.
The kicker here though is that this "carried interest" - which can be a substantial amount of money - is taxed at 15% rates as a capital gain from investments instead of regular tax rates (most likely 39.6% for this type of income) that people like you and me pay on income we earn for doing our jobs.
Now, obviously there is a lot more to it, but both my wife and I agree on this being ridiculous, as does nearly everyone who knows about this, even probably including many people who benefit from this ridiculous tax loophole - even if they won't admit it. But basically, hedge fund managers are able to get extremely large bonus type payments and have them treated as if they were investment income and pay less than half the tax on it.
Closing this loophole has been attempted a number of times in the past - as recently as December 2009. The House passed the "extenders bill" with a provision eliminating this loophole, but it didn't make it through the Senate. And now, the House is poised to pass the Jobs bill with the carried interest provision in it, while the Senate is going to take up the jobs bill as soon as the next week or two.
Unfortunately, Senator Menendez may be one of the roadblocks in the Senate: Baucus and House Ways and Means Chairman Sandy Levin (D-Mich.) agreed in principle two weeks ago that the spending would be offset by closing the loophole. They set about working out the details, but have encountered stiff resistance from within the party. In the Senate, John Kerry (D-Mass.), Maria Cantwell (D-Wash.), Bob Menendez (D-N.J.), Mark Warner (D-Va.), Jeanne Shaheen (D-N.H.), Bob Casey Jr. (D-Pa.) and Patty Murray (D-Wash.) have all expressed a variety of reservations about paying for the jobs measures on the backs of fund managers. On the House side, high-ranking Democrats have spoken out in two separate closed-door caucus meetings this week against taking the vote against the hedge fund crowd.
"I have, overall, a concern about the carried interest loophole as it relates to both characterization rates and implementation period and I think that we can derive revenue that we want and should need, but I think there is a different way to do it," said Menendez on Tuesday. A Menendez aide said that he wants to ensure that the real estate market is not harmed and that businesses don't lose access to venture capital.
This could generate $20 billion - not to mention level the playing field for the middle class. A good analogy here would be for me to declare that the work I do is really "an investment" in my accounting firm, so the wages I am paid for my services aren't really wages, but an investment that I should be able to receive favorable tax treatment for.
Other than the "just think of the poor hedge fund managers" cry, with the economy in such bad shape and a class warfare act being waged right here in NJ by Governor Christie, it is somewhat baffling why someone who has been so good on so many other issues would be looking to keep a huge tax break for those who need it the least and quite frankly, don't even deserve this tax break on the merits of the income it represents.
You can click here if you are interested in contacting Senator Menendez' office, or you can call his office at 202.224.4744, 973.645.3030 or 856.757.5353. |
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